Talk about shopping local

You may be able to get a better energy deal through your municipality

Robert Nunamaker, mayor of Fox River Grove, in front of electric meters at a building in Fox River Grove.

While many homeowners and small-business people are rushing to lock in the best deals they can from alternative electricity suppliers this year, some would be best advised to wait. Their elected officials may be able to get them a better deal.

State law was rewritten in 2010 to allow counties and municipalities to negotiate electric rates for their constituencies. Last year, two dozen communities put the issue of municipal electricity aggregation to a vote in special referendums, with 20 passing.

"We do think the municipal aggregation model can work. We're seeing deals being done below the Commonwealth Edison price," says David Kolata, executive director of the Citizens Utility Board, a long-standing utility watchdog in Chicago. "But we do have some skepticism about the process. Will every town know how to manage the electricity bid process?"

So far there have been few complaints. Most of the towns that passed referendums last year and abandoned ComEd have negotiated rates below 6 cents per kilowatt hour, more than 20 percent off ComEd's prevailing 7.73 cent price. For residents who think they can do better, there is an opt-out provision that, by law, allows them to stay with ComEd or choose any other alternative they prefer.

The village of Fox River Grove, population 4,900, got 70 percent approval for an aggregation referendum a year ago and switched to a new provider in the fall. Only a handful of residents have opted out of the deal with alternative supplier Direct Energy Services LLC of Pittsburgh, the winner among eight bidders. The village negotiated a rate of $5.99 cents per kilowatt hour, locked in for two years.

"The average homeowner in our town is saving about $175 a year with this lower rate," says Robert Nunamaker, Fox River Grove's village president. "Many small businesses downtown are saving $300 a year and more. That's going right to their bottom lines."

Was there any controversy in the switch? Hardly anybody bothered to show up for public hearings in advance of the bidding. "Those few who objected voiced discomfort with the idea of any additional government intervention in their lives," says Village Administrator Art Osten Jr., who contracted with a consultant to manage the bidding. "But we saw this as a no-lose situation."

So did officials in Harvard, a town of 9,500. The city had been using an alternative electric supplier for its municipal water pumping station for several years. But it had little interest from alternative suppliers in trying to reduce the electric bill for city hall itself. "Our electric bill for the pumping facility is $200,000 a year, and lots of suppliers were interested in bidding for that business," says David Nelson, Harvard's city administrator. "But the electric bill at city hall is $8,000 a year. Nobody would bid on that."

Now the city has a deal with Direct Energy, one of the most aggressive municipal aggregation bidders, providing a rate of 5.99 cents per kilowatt hour for the entire community, the same as Fox River Grove. The aggregation doesn't cover 100 local commercial accounts already connected to other alternatives. "We had perhaps 15 people object to our decision to disconnect from ComEd," Mr. Nelson says. "So far about 3 percent of homes have opted out of our aggregation."

Are the municipal deals good for both residents and small businesses? It seems so. Without aggregation, in most places homeowners and small businesses trying to strike their own deals are likely to be paying between 6 cents and 6.5 cents per kilowatt hour, often 10 percent higher than the aggregation rates. The largest manufacturers can often beat a city's aggregated rate, but for smaller businesses the city's rate typically will offer the deepest discount. Expect even more Illinois communities to sign on to this idea by next year.